By Pierre Bertrand

The U.K.'s competition watchdog said Thursday that Hitachi Rail's proposed acquisition of Thales's transportation-systems business could affect costs and quality of service for passengers.

Hitachi Rail said it is disappointed by the regulator's provisional findings, and that the company will closely examine how it can respond to its concerns.

"We are reviewing the proposed provisional findings as a matter of absolute priority and we remain committed to addressing the CMA's concerns through a cooperative approach. Our focus now is to find the best potential mitigations and an appropriate way forward," the Japanese company said in a statement.

Thales said that it too was reviewing the CMA's findings and added, when approached by Dow Jones Newswires, that discussions with the European Commission were continuing as planned.

The Competition and Markets Authority said the deal "could lead to a substantial lessening of competition in the supply of digital mainline and urban signaling rail systems."

The acquisition could also lead to reduced choice for Network Rail and Transport for London, the CMA said in a statement.

"We have provisionally found that, should the Merger go ahead, it would reduce the number of signalling suppliers in what is already a highly concentrated industry, and the resulting loss of competition could leave transport networks and passengers worse off," said Stuart McIntosh, the CMA's independent inquiry group chair.

The CMA said it will now consult on potential remedies, possibly ranging from requiring Hitachi or Thales to sell parts of their existing businesses to prohibiting the merger altogether, in order to guarantee competition in the supply of both digital mainline and urban signaling is protected in the U.K.

Thales and Hitachi Rail entered into negotiations for the sale of the ground transportation systems business in August 2021 for an enterprise value of 1.66 billion euros ($1.78 billion).

Thales said it is still aiming to close the acquisition within the second half of 2023.

Write to Pierre Bertrand at pierre.bertrand@wsj.com

(END) Dow Jones Newswires

June 08, 2023 06:32 ET (10:32 GMT)

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