I agree this doesn't seem right. I filed a Corrective Action Request to fix this behavior (CAR# 639674). A workaround would be to copy the Overlay to a temp image before Merging and then apply the copy after the Merge Overlay.
When merge overlay is performed on image with multiple overlay groups, it merges selected group (correct) and clears all others (wrong!).
It seems that it should affect only what has been said to it (selected group), and do not touch what belongs to somebody else. If you need to kill all other overlays, use clear overlay after it. Or new version needs a switch to not kill other groups - for compatibility.