Canadian AI company Cohere is set to acquire Germany-based Aleph Alpha, with backing from the Schwarz Group—the retail conglomerate behind grocery chain Lidl. With government approval on both sides, the combined entity aims to provide enterprises with a sovereign alternative in an AI market largely ruled by American players. Both firms develop large language models and have been celebrated as local champions, yet they remain far behind global leaders like OpenAI. However, despite these similarities, this is not a merger of equals.

Cohere, last valued at $6.8 billion, will take the lead in the new organization that will absorb Aleph Alpha, pending regulatory and shareholder approval. Schwarz Group, a major Aleph Alpha investor, is already fully supportive. The retail giant will contribute €500 million (roughly $600 million) in structured financing to the new entity, becoming a strategic backer with expectations that it will adopt STACKIT, the sovereign cloud service from Schwarz Digits, its IT division. As part of this investment, Schwarz Group is also leading Cohere’s Series E funding round and has set a valuation target. According to German business outlet Handelsblatt, the term sheet pegs the valuation at around $20 billion—a significant jump that cannot be justified by combined revenue alone. Cohere reported $240 million in annual recurring revenue in 2025, while Aleph Alpha had previously generated minimal revenue and substantial losses.

Yet investors are betting that the partnership will improve their chances. They may not be the only ones thinking this way. Elon Musk’s AI startup xAI has reportedly explored a three-way partnership with France’s Mistral AI and Cursor, a company SpaceX recently secured the option to buy. However, it remains unclear whether Mistral would risk undermining its positioning as a European alternative to U.S. tech—a stance that has boosted its revenues. Similarly, Cohere hopes to gain momentum from enterprises seeking AI providers that better meet their privacy and independence requirements.

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 had previously developed specialized language models for European enterprises and public institutions, such as the PhariaAI suite. A subsequent strategic pivot and the departure of cofounder and CEO Jonas Andrulis left its direction 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 during a press conference announcing the plans on Friday.

The press conference lineup was also revealing. Instead of Aleph Alpha’s co-CEOs, co-founder Samuel Weinbach 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 rising tensions with the United States, Canada has increasingly pursued bilateral initiatives with various partners, including Germany. Citing shared concerns about privacy and security, the two countries recently launched a Sovereign Technology Alliance aimed at “strengthening sovereign AI capacity and reducing strategic technology dependencies.”

The question remains whether European organizations will view a Canada-led initiative as sufficiently sovereign, or whether they will trust that the alliance remains transatlantic over the long term. According to Gomez, “Cohere will become a Canadian-German company.” But ownership could become less clear if an initial public offering is still on the table.