Why Cohere is merging with Aleph Alpha

Canadian AI startup Cohere is taking over Germany-based Aleph Alpha with support from Schwarz Group, the parent company of grocery chain Lidl. With the blessing of their governments, the companies intend to offer a sovereign alternative to enterprises in an AI landscape dominated by American players.

Not an Alliance of Equals

Both companies develop large language models and have been hometown stars in their respective markets, though they lag behind global leaders such as OpenAI. However, this is not an alliance between equals. Last valued at $6.8 billion, Cohere will lead the new entity that will incorporate Aleph Alpha, subject to approval by authorities and shareholders.

Schwarz Group, one of Aleph Alpha’s main shareholders, is fully onboard with the deal. The retail giant will become a strategic backer of the new entity with €500 million (approximately $600 million) in structured financing. The company is also expected to rely on STACKIT, the sovereign cloud service of Schwarz Group’s IT division, Schwarz Digits.

A $20 Billion Bet on Sovereign AI

As part of its investment, Schwarz Group is acting as Cohere’s lead investor in its Series E funding round and has effectively set the valuation. According to German business outlet Handelsblatt, the term sheet anchors the company’s valuation at around $20 billion.

This would mark a significant leap that combined revenues alone do not justify. Cohere reported $240 million in annual recurring revenue in 2025, while Aleph Alpha had previously generated little revenue and significant losses. Still, investors are betting that joining forces will improve their competitive position.

Similar consolidation discussions have surfaced elsewhere in the AI industry. Elon Musk’s AI startup xAI has reportedly discussed a three-way partnership with France’s Mistral AI and Cursor, which SpaceX recently secured an option to buy. Whether European companies would risk undermining their positioning as alternatives to U.S. tech remains an open question.

Targeting Regulated Industries

Cohere is aiming to benefit from growing enterprise demand for AI providers that meet strict privacy and independence requirements. The new entity plans to focus on highly regulated industries including defense, energy, finance, healthcare, manufacturing, telecommunications, as well as the public sector.

Aleph Alpha developed specialized language models for European enterprises and public institutions, including its PhariaAI suite. Although a strategic pivot and the departure of cofounder and CEO Jonas Andrulis created uncertainty around its direction, the company’s team of 250 employees and their expertise could complement Cohere’s capabilities.

“Their focus on small language models, European languages and tokenizers is a really complementary one to our own, which is more of a general focus on large language models,” Cohere CEO Aidan Gomez said during a press conference announcing the plans.

Government Backing and Sovereignty Questions

The political dimension of the deal was evident at the announcement event. Alongside Gomez and Aleph Alpha co-founder Samuel Weinbach were Schwarz Group Chief Digital Officer Rolf Schumann, German Digital Minister Karsten Wildberger, and Canada’s Minister of Innovation, Science and Industry, Evan Solomon.

Amid growing tensions with the United States, Canada has sought stronger bilateral initiatives with partners including Germany. The two countries recently launched a Sovereign Technology Alliance to “strengthen sovereign AI capacity and reduce strategic technology dependencies.”

However, questions remain about whether European organizations will consider a Canadian-German initiative sufficiently sovereign, and whether the alliance will remain transatlantic in the long term. According to Gomez, “Cohere will become a Canadian-German company.” Ownership dynamics could shift further if an IPO moves forward.