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BCE Inc. said Friday that it plans to buy back up to 5 percent of its common shares and resume paying dividends following the collapse of the deal to take Canada's largest telecom company private in what would have been the biggest leveraged buyout in history.

The parent company of Bell Canada said it will repurchase up to 40 million outstanding common shares and will reinstate its quarterly dividend at 36.5 Canadian cents per share.

"A share buyback is the most efficient method of distributing capital to our shareholders, particularly given the current valuation metrics of the company," said chief financial officer Siim Vanaselja.

The buyback would cost BCE about 840.8 million Canadian dollars ($677 million) at its price at midday Friday.

BCE said earlier this week that it would restore the dividend and buy back stock following the collapse of the proposed $35 billion buyout by an investor group led by the Ontario Teachers' Pension Plan and several U.S. partners. The investors group had expected to complete its deal for BCE on Dec. 11.

But the deal fell through after a review by accounting firm KPMG found it would have left the company in violation of solvency tests of the privatization agreement, partly due to the amount of debt involved in the transaction and current market conditions.

There were also arguments over a breakup fee. The buyers group had said that no breakup fee will be paid, but BCE said in a separate statement it will demand payment of 1.2 billion Canadian dollars ($970 million).

Bell Canada issued a statement Friday saying that it will continue to move forward as a re-energized company and is supportive of BCE's buyback plans.

"Given this steadily improving business trajectory, we view the dividend and share buyback initiatives announced by BCE today as very attractive to our shareholders now and going forward," said George Cope, president and CEO of Bell and BCE.

BCE said the first new dividend payment will be made Jan. 15 to shareholders of record on Dec. 23. BCE also scheduled its annual meeting of shareholders on Feb. 17 in Montreal.

The dividend yields 6.95 percent at Friday morning's share price of 21.02 Canadian dollars, down CA$1.01 in trading in Toronto.

That share price is down from CA$38.35 just before it became apparent on Nov. 26 that Teachers' cash bid of CA$42.75 a share would not proceed.

The Toronto-based Ontario Teachers' Pension Plan -- with assets of CA$108 billion ($87 billion) in 2007 -- invests and administers the retirement funds for Ontario's 353,000 active, inactive, and retired teachers. U.S.-based Providence Equity Partners and Madison Dearborn Partners LLC are also involved in the proposed buyout.

BCE, which has more than 54,000 employees, had annual revenue of CA$17.8 billion ($14.4 billion) in 2007. It had 5.8 million wireless subscribers, 8.64 million phone lines, 1.94 million Internet subscribers and 1.82 million satellite television subscribers in 2006. It is Canada's largest communications company.

Real-time data indicate the U.S. economy continues to deteriorate. Income tax withholdings edged up 0.5% year-over-year in the past two weeks and three days and increased 0.4% year-over-year in the past four weeks and three days. Both of these growth rates are well below the three-month average of 1.4%.

Also, the TrimTabs Online Job Postings Index plunged 12.3% in the first three weeks of November to the lowest level since July 2005. Based on our real-time indicators, we estimate the economy is shedding jobs at a rate of roughly 350,000 per month.

Some bullish pundits point to growing amounts of cash on the sidelines--a view that has to ignore the shrinkage of equity and real estate assets as well as the drop in household incomes. What is more important is that consumer cash flow has been collapsing as the economy slumps. In the past eight months, TrimTabs Savings and Investment Flow (TTSIF) totaled $37 billion, down 93% from $502 billion from April 2007 through November 2007. Assuming TTSIF from December 2008 through March 2009 is down 50% from the $300 billion savings flow from the same four months of the previous year, TTSIF in the 12 months ended March 2009 would be less than $200 billion, setting a new multi-decade record low.

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The U.S. float was little changed for the third consecutive week, falling $3.5 billion in the holiday-shortened week ended Wednesday, Nov. 26. Corporate buying remained feeble. New cash takeovers rose to a 10-week high of $950 million, while new stock buybacks edged up to a three-week high of $2.0 billion. On the other side of the liquidity ledger, new offerings rose to $450 million, while net insider selling jumped to a 13-week high of $850 million.

Corporate liquidity is worsening worldwide. On the buy side, large takeovers like BHP Billiton/Rio Tinto, Ontario Teachers' Pension Plan/BCE and Panasonic/Sanyo have been called off, and stock buybacks have hit record lows in Europe and Canada. On the sell side, European banks remain desperate for capital. Banks in Japan and Canada, which had been considered immune to credit market problems, have announced large equity offerings.

New stock buybacks have totaled a mere $11.2 billion in November, the lowest since March 2004. Since Bear Stearns imploded in March, buybacks have been below $30 billion in all but two months. Companies are not confident enough about their prospects to commit large amounts of precious cash to share repurchases.