Reading are set to appoint Brendan Rodgers as manager after agreeing a compensation package that could reach £1m with Championship rivals Watford.
Rodgers, 36, has now left the Hornets after only seven months ahead of his imminent move to the Madejski Stadium.
"Once he confirmed a desire to discuss the opportunity and Reading met a compensation figure we were powerless," said Watford chairman Jimmy Russo.
Reading have been without a manager since Steve Coppell left in May.
Rodgers took over at Watford in November but started his coaching career at Reading and still has his home in the town.
Russo, who was talking to the official club website, added: "We had a frank and open conversation with the manager on Monday to further understand his position.
"It was at this stage he strongly reinforced his desire to talk to Reading."
Northern Irishman Rodgers also had a spell at Chelsea as youth coach and then reserve-team coach before moving to Watford.
Following his departure from Vicarage Road he said in a statement: "I'm very proud of my work at Watford Football Club in what has been a short period.
"But my decision to come to Watford in November 2008 has proved to be the right one.
"It was a very difficult period in the club's history but we became one club after the turmoil and for that I want to say a special 'thank you' to all the Watford supporters.
"We are now on different journeys, however I wish the club every success and I'm very proud that I will be forever connected in the history of your great club."