Why Cohere is merging with Aleph Alpha

Canadian AI startup Cohere is acquiring Germany-based Aleph Alpha with the blessing of governments, with the aim of providing companies with a sovereign alternative in an AI landscape dominated by American companies. “Sovereign AI” refers to a system in which businesses and governments have full control over their own data, rather than having it routed through US tech giants like Microsoft and Google.

As companies that develop large-scale language models, Aleph Alpha and Cohere remain local stars, but globally they still lag far behind the likes of OpenAI. But similarities aside, this is not an alliance of equals. With a final valuation of $6.8 billion, Kohia will lead the new entity that will incorporate Aleph Alpha, subject to regulatory and shareholder approval.

The main financial backer of the deal is German retail conglomerate Schwarz Group. As an existing shareholder in Aleph Alpha, the company is already fully committed to the acquisition. The company will now become a strategic supporter of the newly combined organization with a €500 million (approximately $600 million) structured finance commitment. In return, Schwarz Group expects the new entity to run on STACKIT, a sovereign cloud platform operated by Schwarz Digits, the company’s IT arm, and expects the retail giant to become a major enterprise customer for its cloud business.

To fund the combined entity, Kohia is also raising a new round of funding, Series E, with Schwartz Group expected to be the lead investor. A valuation has already been set, with the term sheet pegging the company’s total value at around $20 billion, according to German business media Handelsblatt.

This would be a significant jump that cannot be justified by total revenue alone. Cohere reported annual recurring revenue of $240 million in 2025, but Aleph Alpha had previously generated little revenue and significant losses. But investors are betting that teaming up will improve their odds against much larger rivals.

They may not be the only ones who think integration is the way forward. Elon Musk’s AI startup xAI is in talks to form a three-way partnership with France’s Mistral AI and Cursor, with SpaceX reportedly recently picking up an acquisition option. But it remains unclear whether Mistral is interested in risking its position as an alternative to U.S. technology that has boosted its profits. The partnership with American company xAI will complicate that identity.

Cohere also expects tailwinds from companies looking for alternatives to AI providers that may not meet their requirements for privacy and independence. The new organization will target highly regulated industries such as defense, energy, finance, healthcare, manufacturing and telecommunications, as well as the public sector.

Aleph Alpha has also developed specialized language models targeted at European businesses and public institutions, including the PhariaAI suite. The company’s subsequent pivot away from building its own Frontier model and the departure of co-founder and CEO Jonas Andrulis have left its strategy and leadership uncertain and its negotiating position weakened. But its 250-person team and its expertise could still complement Cohere.

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

Amid rising tensions with the United States, Canada has become increasingly keen to sign bilateral initiatives with various partners, including Germany. Driven by shared concerns about privacy and security, the two countries recently launched the Sovereign Technology Alliance, which aims to “strengthen sovereign AI capabilities and reduce dependence on strategic technologies.”

The question remains whether European institutions will consider initiatives involving Canada sufficiently sovereign, or whether they believe that the transatlantic alliance will be maintained in the long term. “Cohere will be a Canadian-German joint venture,” Gomez said. But if the company goes public, that promise could be harder to keep because it would put ownership in the hands of global shareholders with no particular allegiance to either country.