I can absolutely see us selling Kyle if he wants to go, but City will have to pay through the nose, it really is as simple as that.
He is the best RB in the country by a mile. He has years of premier league experience. It's not often a defender wins young player of the year, which he did some years ago ahead of the likes of Bale and Aguero. That was because he had unparalleled pace and huge potential. We've developed that potential, got rid of his brain farts and he is now in his prime. We are also in an era where FBs are not just defenders, they are attacking players too, so the landscape has changed for what a FB is worth to a team - good FBs really need to be considered in the same bracket as wingers nowadays.
At the end of the day it is supply and demand. They can buy a lesser player for less money if they want to. That's fine by us. Selling Walker would not be devastating for us but we also don't need to do it, and would prefer him to stay. And on top of all that we're talking about selling to a rival here. We'll be challenging for the title again next season and so will City. If they want to weaken us while strengthening them they have to pay top dollar, that way we can negate that impact by buying in who we want to strengthen our team, else it would make no sense for us.
In my opinion Levy will do what Levy does which is sell overpriced, and city will do what they do best which is buy overpriced. But if he stays, great.