The high court overturned a Quebec Court of Appeal decision which had said the C$34.8 billion ($34.1 billion) plan, to be funded partly by taking on new debt, did not take adequate account of the interests of existing bondholders.

"The decision of the Court of Appeal is set aside," the Supreme Court said in its unanimous judgment, without giving reasons.

It was a stunning victory for BCE, parent of Bell Canada. Analysts said the ruling would make BCE shares jump closer to the C$42.75 being offered by the Canadian-U.S. group of investors led by Ontario Teachers' Pension Plan.

"It's a pro-transaction position," Marshall Sonenshine, chairman of New York-based investment bank Sonenshine Partners, said of the ruling. "It favors the ability to do a deal that is in the interests of shareholders even if it impairs credit worthiness, and bondholders need to be aware of that."

BCE's New York-listed shares rose 8.8 percent to $37.10 in extended trade as investors digested the late-afternoon ruling.

However, banks involved in the deal are seeking better terms and that could still pose problems for the transaction, which has a June 30 deadline.

"They're not out of the woods yet," said Troy Crandall, an analyst with MacDougall, MacDougall & MacTier. "The next thing is the financing."

But in a statement released minutes after the Supreme Court ruling, the four banks financing the debt portion of the BCE deal said they stand behind their original commitment to the buyout.

"The banks expect that the transaction will close in accordance with the definitive agreement between BCE and the sponsors," Citigroup (NYSE:C - News), Deutsche Bank (XETRA:DBKGN.DE - News), Royal Bank of Scotland (LSE:RBS.L - News) and Toronto-Dominion Bank (Toronto:TD.TO - News) said in their statement.

"We continue to negotiate the financing documents in good faith with the sponsors and stand behind our original commitment to the transaction."

Before the surprise Quebec court decision on May 21, BCE stock had traded at C$37.12 a share. That was well below the offer price because of uncertainty that the deal would be completed. The shares closed at C$34.60 on Friday on the Toronto Stock Exchange just before the Supreme Court of Canada ruling.

The decision is a blow for Bell Canada bondholders, who had said the value of their securities had fallen by 18 percent because of ratings downgrades.

They had said directors for Bell and BCE had inappropriately tried only to maximize shareholder value. As a possible remedy they had suggested to the Supreme Court that BCE could be asked to redeem their bonds.

A ruling in their favor would have raised serious questions over the fate of future takeover bids, as it would have put boards in what BCE had argued would be irreconcilable conflict as they balance shareholder and bondholder interests.

It is still possible the Supreme Court might give clearer boundaries on future takeovers when it delivers a written opinion later, but for now BCE and the buyers will be racing to wrap up the deal.

Ontario Teachers' buyout partners are U.S.-based private equity firms Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity.

($1=$1.02 Canadian)

(Additional reporting by David Ljunggren, Lynne Olver, Paritosh Bansal and Chelsea Emery; Editing by Peter Galloway)