Cohere and Aleph Alpha Announce Merger

Canadian AI startup Cohere is acquiring Germany's Aleph Alpha with backing from the Schwarz Group, the parent company of grocery chain Lidl. With government support, the companies aim to provide a sovereign alternative for enterprises within an AI sector currently dominated by American firms.

As developers of large language models, both Aleph Alpha and Cohere have been regional leaders, though they still trail global giants like OpenAI. Despite their similarities, this is not a merger of equals. Cohere, last valued at $6.8 billion, will lead the new entity formed by incorporating Aleph Alpha, pending regulatory and shareholder approval.

The Schwarz Group, a major Aleph Alpha shareholder, has endorsed the deal. The retail conglomerate will become a strategic investor in the combined company, providing €500 million (approximately $600 million) in structured financing. It is also expected to utilize STACKIT, the sovereign cloud service from its IT division, Schwarz Digits.

As part of its investment, the Schwarz Group is leading Cohere's Series E funding round, setting a notable valuation. According to German business publication Handelsblatt, the term sheet values the new entity at around $20 billion.

This valuation represents a significant premium that current combined revenues cannot fully justify. While Cohere reported $240 million in annual recurring revenue for 2025, Aleph Alpha had previously generated minimal revenue with substantial losses. Investors are betting that the combined strengths of the two companies will improve their market position.

They may not be alone in this strategy. Reports suggest Elon Musk's AI startup, xAI, has explored a potential three-way partnership involving France's Mistral AI and Cursor, which SpaceX recently secured an option to acquire. However, it is uncertain if Mistral AI would risk compromising its strategic position as a European alternative to U.S. technology.

Cohere aims to attract enterprises seeking alternatives to AI providers that may not fully meet their requirements for data privacy and operational independence. The new company plans to target heavily regulated industries—including defense, energy, finance, healthcare, manufacturing, and telecommunications—as well as the public sector.

Aleph Alpha had developed specialized language models for European enterprises and public institutions, such as its PhariaAI suite. While a subsequent strategic shift and the departure of its co-founder and CEO Jonas Andrulis created some uncertainty, its team of 250 professionals and their expertise remain valuable assets for Cohere.

“Their focus on small language models, European languages, and tokenization complements our own focus on large language models,” stated Cohere CEO Aidan Gomez during a press conference announcing the plans.

The press conference lineup was indicative of the new structure. Instead of 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 geopolitical tensions, Canada has been actively pursuing bilateral technology initiatives with partners like Germany. Sharing concerns over privacy and security, the two nations recently launched a Sovereign Technology Alliance to strengthen sovereign AI capabilities and reduce strategic dependencies.

A key question is whether European organizations will perceive a Canadian-German venture as sufficiently sovereign or trust that the transatlantic alliance will remain stable long-term. According to Gomez, “Cohere will become a Canadian-German company.” However, the ownership structure could evolve if a future public listing remains a possibility.