Why Cohere is merging with Aleph Alpha

Canadian AI startup Cohere is taking over Germany-based Aleph Alpha, with the blessing of their governments, in a bid to offer a mainstream alternative to businesses in an AI landscape dominated by US players. “Sovereign AI” refers to systems where companies and governments retain full control of their own data — instead of routing it through US tech giants like Microsoft or Google.

As companies developing large language models, Aleph Alpha and Cohere have been stars in their home country, while still lagging far behind OpenAI and the like globally. But similarities aside, this is not an alliance of equals. Last price in 6.8 billion dollarsCohere will lead the new entity that will incorporate Aleph Alpha, subject to regulatory and shareholder approval.

The main financial backer of the deal is Schwarz Group, a German retail conglomerate. As an existing shareholder of Aleph Alpha, it is already fully integrated into the acquisition. And going forward, it will also become a strategic backer of the new entity with €500 million in structured financing (about $600 million). In return, Schwarz Group expects the new entity to operate on STACKIT – the dominant cloud platform operated by its IT division, Schwarz Digits – giving the retail giant a major business customer for its cloud business.

To fund the combined entity, Cohere is also raising a new round of funding — a Series E — and Schwarz Group will be its lead investor. The valuation has already been set: according to German business media Handelsblatt, the term sheet sets the company’s total value at around 20 billion dollars.

That would be a significant jump that combined revenue alone cannot justify. While Cohere reported $240 million in annual recurring revenue in 2025, Aleph Alpha had previously created little revenue and significant losses. But investors are betting that the partnership will improve their chances against much bigger rivals.

They may not be alone in thinking that consolidation is the way forward. Elon Musk’s AI startup xAI has reportedly discussed a tripartite partnership with France’s Mistral AI and Cursor, which SpaceX recently secured an option to purchase. But it remains unclear whether Mistral would be interested in risking undermining its position as an alternative to the US technology that has boosted its revenue. A partnership with xAI — an American company — would complicate that identity.

Cohere also hopes to gain traction with businesses looking for alternatives to AI providers that may not meet their demands for 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 has also developed specialized language models aimed at businesses and public organizations in Europe, such as the PhariaAI suite. A subsequent move away from building its own models at the border and the departure of co-founder and CEO Jonas Andrulis made its strategy and leadership less clear and left it in a weakened negotiating position. But the 250-person team and their expertise could still complement Cohere.

“Their focus on small language models, European languages ​​and tokenizers it’s really complementary to ours, which is more focused on large language models,” Cohere CEO Aidan Gomez said at a news conference announcing the plans on Friday.

Amid rising tensions with the United States, Canada is increasingly keen to sign bilateral initiatives with various partners, including Germany. With a shared concern for privacy and security, the two countries recently started a Dominant Technological Alliance to “enhance dominant AI capability and reduce strategic dependencies on technology.”

The question remains whether European organizations will see an initiative that includes Canada as sufficiently dominant, or whether they will trust the alliance to remain transatlantic in the long term. According to Gomez, “Cohere will become a Canadian-German company.” But that promise could be harder to keep if the company goes public — putting ownership in the hands of global shareholders with no particular allegiance to either country.