Yeah, the merge tool is perhaps more appropriately called the "join" tool. In fact, we just renamed it to that in the next version of the software. It only joins tracks end to end.
If you want to combine tracks you might try the "Make Network" command in the Analysis menu. It is really not designed to work on a single track with one one and back, but there's some chance it might do exactly what you want. Give it a shot, you might find it useful for other stuff down the road.