Arsenal have finalised an agreement in principle with West Ham to sign Declan Rice for £105m after Manchester City pulled out of the race for the midfielder. Arsenal made a third offer of £100m plus £5m in add-ons on Tuesday night and only minor issues relating to the structure of the deal remained to be completed on Wednesday evening. City had a £90m bid rejected earlier on Tuesday and did not want to go as high as Arsenal. Pep Guardiola had identified Rice as a replacement for Ilkay Gündogan after the Germany midfielder’s move to Barcelona on a free transfer. Insiders at West Ham had expected City to submit an improved offer for Rice on Wednesday morning. West Ham have been holding out for at least £100m and have used City’s interest to drive up the price for their captain. The fee for the England international will top the £100m City paid to sign Jack Grealish from Aston Villa two years ago and make Rice the most expensive British player. Chelsea, Manchester United and Bayern Munich had also looked at signing Rice, but Arsenal have been at the front of the queue since Christmas. Arsenal had an offer of £75m plus £15m in add-ons rejected last week, with West Ham unhappy with the proposal to spread the guaranteed portion of the payment over five years. The size of Arsenal’s offer is acceptable to West Ham, who used Jude Bellingham’s move to Real Madrid on an initial £88.5m as a guide during negotiations. City’s bid had left Arsenal at risk of missing out on Mikel Arteta’s top target. Yet the message from well-placed sources has constantly been that Rice wants to join Arsenal. The 24-year-old preferred to remain in London – he recently became a father and is very attached to his family – and finalising terms over a long-term deal with Arsenal will not be a problem. Arteta has made clear to Rice where he will fit into his team and has plans to build his midfield around the player and Kai Havertz, who has signed from Chelsea for £65m. Havertz has played as a No 9 for Chelsea but will be used in a deeper role for Arsenal. Arteta is also close to sealing a £50m deal for the Ajax defender Jurriën Timber and wants the Southampton midfielder Roméo Lavia. Arsenal are spending heavily as they look to mount another title challenge and could make space for Rice by selling Granit Xhaka to Bayer Leverkusen and Thomas Partey to Juventus. Rice’s final game for West Ham was the Europa Conference League final win over Fiorentina this month. West Ham have accepted his wish to leave and compete at a higher level. Rice joined after being released by Chelsea aged 14 and has become one of the best players in their history. Renowned for his ability as a defensive midfielder, Rice will hope to develop the attacking side to his game at Arsenal. West Ham will look to replace Rice with two central midfielders – there is interest in Fulham’s João Palhinha, Juventus’s Denis Zakaria, Everton’s Amadou Onana and Southampton’s James Ward-Prowse – and also want a centre-back. They will rival Newcastle, Aston Villa and Tottenham for the Leicester winger Harvey Barnes.