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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.

The government said it was giving banks more money so they could make more loans. Dollars paid to shareholders don't serve that purpose, but Treasury officials say that suspending quarterly dividend payments would have deterred banks from participating in the voluntary program.

Critics, including economists and members of Congress, question why banks should get government money if they already have enough money to pay dividends -- or conversely, why banks that need government money are still spending so much on dividends.

"The whole purpose of the program is to increase lending and inject capital into Main Street. If the money is used for dividends, it defeats the purpose of the program," said Sen. Charles E. Schumer (D-N.Y.), who has called for the government to require a suspension of dividend payments.

The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid.

Among other restrictions, participating institutions cannot increase dividend payments without government permission. They also are barred from repurchasing stock, which increases the value of outstanding shares.

The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter. Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52 percent of the Treasury's investment over the initial three-year term.

"The terms of our capital purchase program were set to encourage participation by a broad array of financial institutions so they strengthen their financial positions," Treasury spokeswoman Michele Davis said.

The Treasury's approach contrasts with decisions by foreign governments, including Britain and Germany, to require banks that accept public investments to suspend dividend payments until the government is repaid. The U.S. government similarly required Chrysler to suspend its dividend payments as a condition of the government's 1979 bailout.

The legislation passed by Congress authorizing the Treasury's current bailout program is silent on the issue.

The first nine participants were major banks, some running short on capital, that were told by Treasury officials earlier this month to sign on to the program for the good of the country. Their major shareholders are primarily institutional investors, such as pension funds and mutual funds, although a few wealthy individuals hold large stakes, such as Warren Buffett in Wells Fargo and Prince Alwaleed bin Talal in Citigroup.

Several banks are on pace to pay more in dividends than they get from the government. The Bank of New York Mellon got $3 billion from the government on Tuesday. It will pay out $275 million to shareholders this quarter, and a projected $3.3 billion over the next three years. A spokesman declined to comment.