Steps

Create two collections (Foo1 and Foo2)

Add a different bookmark (e.g google.com and yahoo.com) to each.

In Foo2, create a nested collection Foo3 and add a bookmark there as well (bing.com).

Select Foo1 and Foo2.

Unselect the Foo3 that's automatically selected.

Merge Foo1 and Foo2.

Observe the unmerged collection (Foo3) just disappers, while the contents of Foo1 and Foo2 are merged.

I'd expect the "dangling" folder here (Foo3) to be moved somewhere top level maybe? But not completely wiped.