The 20-year-old Arsenal attacking midfielder has spent the last few months on loan at Brighton, trying to help the Seagulls pull clear of the relegation zone.
When news of Reading's bid came in Steve Coppell was anxious to keep the young starlet at the club and despite financial difficulties at the club was able to match the Royals undisclosed bid, believed to be in the region of £300,000.
However, Brighton's bid appears to have failed and Sidwell is believed to have accepted a deal to move to the Madejski Stadium to play for the high-flying Royals.
Brighton Chairman Dick Knight today confirmed to the Seagulls Official Site that their bid has failed.
"Steve Coppell and I did everything in our power to keep Steve Sidwell at Brighton. We matched Reading's offer to Arsenal which was a deal worth £300,000," said the Brighton supremo.
"Ovbiously Reading's First Division prospects were a strong pull but we would have matched them on the player's personal terms, given him guaranteed first teem football, not a certainty at Reading, and the opportunity to work with a manager who believes in him and his potential.
"We wish Steve every success in his future career, and thank him for his magnificent contribution to the club's fight to stay in Division One."
Official confirmation of the transfer is expected shortly but Sidwell will not have been registered in time to feature during tomorrow's clash with Walsall.