Why Cohere is merging with Aleph Alpha

Canadian AI startup Cohere has acquired Germany-based Aleph Alpha with the government’s blessing to provide companies with a sovereign alternative in an AI landscape dominated by US companies. “Sovereign AI” refers to a system in which companies and governments retain full control over their own data, rather than routing it through U.S. tech giants like Microsoft or Google.

As companies developing large-scale language models, Aleph Alpha and Cohere have been stars in their hometowns, but they still lag far behind the likes of OpenAI globally. But similarities aside, this is not an alliance between equals. Cohere, last valued at $6.8 billion, will lead the new entity that will incorporate Aleph Alpha, subject to authorities and shareholder approval.

The main financial backer of the deal is German retail giant Schwarz Group. As an existing shareholder of Aleph Alpha, Aleph Alpha has already fully participated in the acquisition. And going forward, it will become a strategic backer of the newly combined company, investing 500 million euros (about $600 million) in structured financing. In return, Schwarz Group expects the new entity to run on STACKIT, a standalone cloud platform operated by its IT arm Schwarz Digits, making the retail giant a key enterprise customer for its cloud business.

To fund the merged entity, Cohere is raising a new financing round, Series E, in which Schwarz Group will serve as the lead investor. The valuation is already set. According to German business publication Handelsblatt, the term sheet puts the company’s total value at around $20 billion.

This would be a significant leap forward that cannot be justified by combined revenues alone. Cohere reported annual recurring revenue of $240 million in 2025, while Aleph Alpha previously had little revenue and significant losses. But investors are betting that teaming up will improve the odds against a much larger rival.

They may not be the only ones who think integration is the way forward. 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 acquisition option for. But it remains unclear whether Mistral would be interested in risking undermining its position as an alternative to the American technology that has boosted its profits. A partnership with US company xAI will complicate its identity.

Cohere, too, expects a tailwind from companies looking for alternatives to AI providers that may not meet their privacy and independence requirements. The new entity plans to target highly regulated industries such as defence, energy, finance, healthcare, manufacturing and telecommunications, as well as the public sector.

Aleph Alpha has also developed specialized language models targeting European enterprises and public institutions, such as the PhariaAI suite. The move away from building its own Frontier model and the departure of co-founder and CEO Jonas Andrulis have left its strategy and leadership less clear and its negotiating position weaker. However, the 250-person team and their expertise can still complement Cohere.

“Their focus on small language models, European languages ​​and tokenizers is complementary to our own, which is closer to our general focus on large language models,” Cohere CEO Aidan Gomez said at a press conference announcing the plans Friday.

Amid rising tensions with the United States, Canada is increasingly keen to sign bilateral initiatives with a range of partners, including Germany. With shared concerns about privacy and security, the two countries recently launched the Sovereign Technology Alliance to “strengthen sovereign AI capabilities and reduce strategic technology dependencies.”

The question is whether European organizations will view initiatives involving Canada as sufficient sovereignty, or whether they will believe that the alliance will remain transatlantic in the long term. According to Gomez, “Cohere will be a Canadian-German company.” But once a company goes public, keeping that promise may become more difficult. That means ownership will fall into the hands of global shareholders with no particular allegiance to any one country.