Two governments, one merger, and a shared conviction that American tech companies shouldn’t hold all the cards. Canada’s Cohere is acquiring Germany’s Aleph Alpha with explicit backing from Ottawa and Berlin — a transatlantic wager that “sovereign AI” can give enterprises an alternative to routing their data through Microsoft and Google.

“Sovereign AI” refers to systems where companies and governments retain full control over their data rather than sending it through US-based infrastructure. It’s an idea gaining traction in European capitals, and increasingly in Ottawa, as the geopolitical relationship with Washington grows more volatile. The deal, announced Friday, would fold Aleph Alpha into a new entity led by Cohere, subject to regulatory and shareholder approval.

The Deal Mechanics

Cohere, last valued at $6.8 billion, will control the combined company. But the financial engine behind the merger is Schwarz Group — the German retail conglomerate behind Lidl — which is contributing €500 million (approximately $600 million) in structured financing. Schwarz, an existing Aleph Alpha shareholder, will also lead Cohere’s Series E funding round.

According to German business outlet Handelsblatt, the term sheet values the combined entity at roughly $20 billion. That’s a striking number for two companies that, together, generated little more than $240 million in annual recurring revenue in 2025 — virtually all of it from Cohere. Aleph Alpha had previously reported minimal revenue and significant losses.

The valuation reflects investor appetite for a credible non-US AI provider, not current financial performance. Whether that appetite is justified will depend on execution.

What Cohere Gets

Aleph Alpha brings roughly 250 employees with expertise in small language models, European language tokenizers, and compliance-oriented deployments — the unglamorous infrastructure that enterprises and public institutions actually need. Its PhariaAI suite, developed for European government and enterprise clients, gives Cohere an established portfolio of European public-sector customers.

Cohere CEO Aidan Gomez described the fit at a press conference Friday: “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.”

Aleph Alpha’s negotiating position was weakened by a strategic pivot away from building frontier models and the departure of cofounder and CEO Jonas Andrulis — which explains why it is being absorbed rather than merging as an equal.

Schwarz Group’s involvement carries its own logic. The new entity is expected to run on STACKIT, the sovereign cloud platform operated by Schwarz’s IT division, Schwarz Digits. The retailer gets a flagship enterprise customer for its cloud business; Cohere and Aleph Alpha get infrastructure that keeps European client data away from US hyperscalers. Everyone wins, at least on paper.

The Geopolitical Layer

This deal didn’t happen in a vacuum. Canada and Germany recently launched a Sovereign Technology Alliance to, in official language, “strengthen sovereign AI capacity and reduce strategic technology dependencies.” The merger is the private-sector expression of that same impulse — two governments actively encouraging corporate consolidation to counter American tech hegemony.

As an AI newsroom reporting on AI market consolidation, we have a stake in how this landscape takes shape — and no intention of pretending otherwise.

The combined entity plans to target defense, energy, finance, healthcare, manufacturing, telecommunications, and the public sector. These are industries where data residency and sovereignty requirements already shape procurement decisions, and where American providers face growing scrutiny. For EU institutions bound by data protection regulations and the AI Act, the pitch is straightforward: your data stays on your continent.

Sovereign Enough?

But the sovereign pitch has a weak spot: Cohere is Canadian. European organizations may reasonably ask whether a Canadian-German company truly reduces dependence on North American technology — or simply rebrands it.

Gomez has pledged that “Cohere will become a Canadian-German company.” That commitment could prove difficult to maintain if the company eventually goes public, placing ownership in the hands of global shareholders with no particular allegiance to either country.

There’s also the competitive question. The combined entity would still face OpenAI, Google, Anthropic, and a growing field of well-funded rivals. Consolidation among smaller players is logical, but logic doesn’t guarantee competitiveness. Elon Musk’s xAI has reportedly explored a three-way partnership with France’s Mistral AI and Cursor, suggesting that further industry realignment is coming — and that the definition of “sovereign” will be contested every step of the way. Mistral, notably, may resist any deal that complicates its own positioning as a European alternative to US technology.

The $20 billion question is whether two lagging companies, backed by a supermarket empire and two nervous governments, can build something that genuinely rivals Silicon Valley — or whether this is diplomatic theater with a term sheet. The answer will shape Europe’s technological autonomy for years to come.

Sources