Why Cohere is merging with Aleph Alpha
Canadian AI startup Cohere is taking over Germany-based Aleph Alpha with support from Lidl’s owner, Schwarz Group. With the blessing of their governments, the companies intend to offer a sovereign alternative to enterprises in an AI landscape dominated by American players.
Canadian AI startup Cohere is taking over Germany-based Aleph Alpha, with the blessing of their governments, in a bid to offer a sovereign alternative to enterprises in an AI landscape dominated by American players. “Sovereign AI” refers to systems where 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 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.
The deal’s key financial backer is Schwarz Group, a German retail conglomerate. As an existing shareholder in Aleph Alpha, it is already fully onboard with the acquisition. And going forward, it will also become a strategic backer of the newly combined entity with €500 million in structured financing (approximately $600 million). In return, Schwarz Group expects the new entity to run on STACKIT — the sovereign cloud platform operated by its IT division, Schwarz Digits — giving the retail giant a major enterprise customer for its cloud business.
To fund the combined entity, Cohere is also raising a new round of financing — a Series E — and Schwarz Group will serve as its lead investor. The valuation has already been set: according to German business media outlet Handelsblatt, the term sheet pegs the company’s combined worth 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 against much larger rivals.
They may not be alone in the thinking that consolidation is the path 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 the option to buy . But it remains unclear whether Mistral would be interested in risking undermining its positioning as an alternative to U.S. tech that boosted its revenues . A partnership with xAI — an American company — would complicate that identity.
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.
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Aleph Alpha also developed specialized language models targeting enterprises and public institutions in Europe, such as the PhariaAI suite. A subsequent pivot away from building its own frontier models and the departure of its cofounder and CEO Jonas Andrulis made its strategy and leadership less clear, and left it in a weakened negotiating position. 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.
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 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.
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Key takeaways
- The merger represents a strategy to provide sovereign AI solutions aligned with local needs and data protection.
- The financial backing from Schwarz Group highlights the importance of strategic partnerships for the growth of tech startups.
- Consolidation in the AI sector may inspire similar movements in Brazil, encouraging collaborations among local startups.
Editorial analysis
The merger between Cohere and Aleph Alpha represents a significant strategic move in the global artificial intelligence landscape, especially in a context where data sovereignty is becoming increasingly relevant. For Brazil, which seeks to develop its own technology and AI infrastructure, this union could serve as a model for how local startups can band together to compete with industry giants. The idea of 'sovereign AI' resonates with Brazilian initiatives aimed at data protection and promoting local solutions, such as the General Data Protection Law (LGPD), which already establishes strict guidelines on the use of personal information.
Moreover, the financial backing from Schwarz Group highlights the importance of strategic partnerships between companies and investors for the growth of tech startups. In Brazil, where the startup ecosystem is expanding, this approach could encourage more collaborations between local companies and international investors, creating a more robust environment for innovation. The expectation is that this merger will not only strengthen the new entity's position in the European market but also inspire similar movements in other regions, including Latin America.
One point to watch is how the new entity will position itself against regulatory and market challenges, especially in a landscape dominated by American competitors. The ability to offer AI solutions that respect data sovereignty could be a competitive advantage, but execution will be crucial. Brazil, with its diverse sectors and demands, could benefit from tailored solutions that meet local needs, and the Cohere-Aleph Alpha merger could serve as a catalyst for such development.
Finally, the consolidation movement in the AI sector, evidenced by this merger, suggests that startups are recognizing the need to join forces to survive in a highly competitive market. Brazil should pay attention to these trends, as collaboration among local startups could be an effective strategy to face the challenges posed by large global players. What follows for the new entity will be a test of its ability to innovate and adapt to market demands, something that could have significant repercussions for the technology ecosystem in Brazil and Latin America as a whole.
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