The way I see it, neither one would exist without the other to compete against. Because lets face it, BMW is MB's only REAL competition, and MB is BMW's only real competition. If they were to merge, they would no longer be directly competing against each other, and we all know that what keeps these two companies so far out in front is that they're always trying to one up each other, while still staying profitable.
A merger like this would completely undermine the cyclical one-up-manship that is the very foundation of both companies success.