A merger between these two wouldn't solve their problems, merely double them. Their combined memberships have been steadily shrinking (even after North's successes from 95-99), so why would that change after a merger?
The AFL wouldn't let them just pick their best players anyway.
Anyway, a merger would only reduce the number of clubs in Melbourne by one, it needs to be reduced by 2 or 3.
Their only hope is a relocation. Perth could easily handle a third AFL club, based somewhere way up in the Northern suburbs.
Adelaide couldn't support a third club, but it would make more sense for the AFL to give life-support to a club in Tasmania than in an inner-Melbourne suburb.