According to reported comments from Roberto Mancini from an interview given to Sky Italia:
"I have spoken to Sánchez. He said he was open to the idea of coming to City but then we have pulled out. After our last offer, we are out of the race to acquire the Chilean player."
In the same article, Gino Pozzo (son Udinese owner Giampolo Pozzo) is quoted as saying:
"Have City pulled out of the race?," Gino Pozzo, son of the Udinese owner Giampaolo Pozzo, said to Corriere dello Sport. "You should ask them. We have not entered negotiations with City.
"The will of the player is to go to Barcelona. The negotiations with the Catalan club are going forward. With calmness, we will find a solution. We will speak to Barça and we will see."
More no doubt to come on this...