Why Cohere is merging with Aleph Alpha

Canadian AI startup Cohere is taking over Germany-based Aleph Alpha with support from Schwarz Group (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.

As companies that develop large language models, Aleph Alpha and Cohere have been hometown stars, while still lagging far behind OpenAI and the likes globally. But similarities aside, this isn’t 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 already fully onboard with the deal. The retail giant will now become a strategic backer of the new entity with €500 million in structured financing (approximately $600 million) — and with expectations that it will make use of STACKIT, the sovereign cloud service of its IT division Schwarz Digits.

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

This would be a significant leap that combined revenue alone can’t justify. While Cohere reported $240 million in annual recurring revenue in 2025, Aleph Alpha had previously generated little revenue and significant losses. But investors are betting that teaming up will improve their odds.

They may not be alone in their thinking. Elon Musk’s AI startup xAI has reportedly discussed a three-way partnership with France’s Mistral AI and Cursor, which SpaceX recently secured the option to buy. But it remains unclear whether the French company would be interested in risking undermining the very positioning as an alternative to U.S. tech that boosted its revenues.

Cohere, too, is hoping to get tailwinds from enterprises looking for alternatives to AI providers that may not meet their requirements when it comes to privacy and independence. The new entity plans to target highly-regulated industries — including defense, energy, finance, healthcare, manufacturing and telecommunications— as well as the public sector.

Aleph Alpha also developed specialized language models targeting enterprises and public institutions in Europe, such as the PhariaAI suite. A subsequent pivot and the departure of its cofounder and CEO Jonas Andrulis made its strategy and leadership less clear, but its team of 250 people and their expertise could still complement Cohere.

“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 in a press conference announcing the plans on Friday.

The press conference’s lineup was also telling. Rather than Aleph Alpha’s co-CEOs, it was co-founder Samuel Weinbach who joined Gomez on stage alongside Schwarz Group’s chief digital officer Rolf Schumann. The event also featured German digital minister Karsten Wildberger and his Canadian counterpart Evan Solomon.

Amid growing tensions with the United States Canada has been increasingly keen to sign bilateral initiatives with a variety of partners, including Germany. With a shared concern for privacy and security, the two countries recently launched a Sovereign Technology Alliance to “strengthen sovereign AI capacity and reduce strategic technology dependencies.”

The question remains whether European organizations will view an initiative involving Canada as sufficiently sovereign, or whether they will trust that the alliance will remain transatlantic in the long run. According to Gomez, “Cohere will become a Canadian-German company.” But ownership could soon become less clear if an IPO is still in the cards.