Swiss drugmaker Roche said on Wednesday it would not extend a $6.8 billion hostile offer for genetic specialist Illumina as the U.S. group's shareholders blocked its move to appoint new directors.

Roche, which is now set to walk away from its takeover target, said an offer above $51.00 per share would not be in the interests of its own shareholders.

The tender offer for Illumina expires on Friday and Roche said it would not extend the bid as the U.S. firm's management had refused to engage in constructive dialogue.

Gene sequencing specialist Illumina, which has branded itself the Apple of the genomics business, has rejected Roche's sweetened takeover offer and had repeatedly urged shareholders to vote against Roche's nominees to its board.

It won't hurt Roche to send a signal that they can walk away from these deals, said Navid Malik, an analyst at Cenkos Securities in London.

Roche, the world's largest maker of cancer drugs, has been developing targeted therapies and Illumina's technology would help it to progress further in this field as gene sequencing can better identify which patients benefit from a given drug.

But there are also other approaches Roche can take, given its existing strong position in diagnostics.

Roche will continue to consider options and opportunities to develop further its portfolio of businesses in order to expand its diagnostics leadership position, Chief Executive Severin Schwan said in a brief statement.

Roche's decision not to extend its bid came as Illumina shareholders were meeting to vote on a Roche proposal for a slate of nominees for director seats, in a bid to win majority control of the board.

Illumina shareholders backed all four of Illumina's nominees to the board and rejected Roche's proposal to increase the size of the board to 11 directors.

Chief Executive Schwan had already warned Roche would have to consider all its options if Illumina shareholders voted against its proposals at that meeting.

TRADING STRATEGY

One hedge fund shareholder at the Illumina meeting in New York said the top three or four shareholders were behind Illumina management and the board, so the outcome of the vote was no surprise.

Anticipating this outcome, many hedge funds had shorted Illumina stock and actually made money, he added.

Another shareholder, who also asked not to be identified, said: Roche had not yet offered a price that's enough to start negotiations.

Roche has built up a reputation as a tough and disciplined consolidator after protracted recent takeover battles for Ventana and Genentech. But in both cases, the pattern was to exhaust shareholders and strike a deal with a last-minute sweetener.

Shares in Illumina were trading down 4.8 percent at $41.90 by 1415 GMT, below Roche's initial offer of $44.50 per share, made when it launched the bid in January. Roche shares were up 1.1 percent at 163.00 Swiss francs.

Hedge fund investors and bankers had said they would expect Illumina's shares to plunge to $38-42 standalone value if Roche walked away.

(Additional reporting by Ben Hirschler in London; Editing by Helen Massy-Beresford)