If you're willing to put up with a bit of abstract algebra, there's a nice generalization here: Iterable[_] is a monoid under concatenation, where a monoid's just a set of things (iterable collections, in this case) and an addition-like operation (concatenation) with some simple properties and an identity element (the empty collection).
Similarly, if A is a monoid, then Option[A] is also a monoid under a slightly more general version of your merge:
Some(xs) + Some(ys) == Some(xs + ys)
Some(xs) + None == Some(xs)
None + Some(ys) == Some(ys)
None + None == None
(Note that we need the fact that A is a monoid to know what to do in the first line.)
The Scalaz library captures all these generalizations in its Monoid type class, which lets you write your merge like this:
import scalaz._, Scalaz._
def merge(i1: Option[Iterable[_]], i2: Option[Iterable[_]]) = i1 |+| i2
Which works as expected:
scala> merge(Some(1 to 5), None)
res0: Option[Iterable[_]] = Some(Range(1, 2, 3, 4, 5))
scala> merge(Some(1 to 5), Some(4 :: 3 :: 2 :: 1 :: Nil))
res1: Option[Iterable[_]] = Some(Vector(1, 2, 3, 4, 5, 4, 3, 2, 1))
scala> merge(None, None)
res2: Option[Iterable[_]] = None
(Note that there are other operations that would give valid Monoid instances for Iterable and Option, but yours are the most commonly used, and the ones that Scalaz provides by default.)