I've run into some strange behavior with the PPro subtitler. Recently I received early access to the speech to text transcription feature (absolutely brilliant time saver, let me add), and the symptom described below has only been observed on sequences that I've had Premiere auto transcribe and then auto subtitle with that transcript.
As the auto subtitle feature tends to chop the transcript into extremely small blocks - sometimes only two or three words long - it's necessary to go through the sequence and merge caption blocks to get the desired amount of text on screen. Normally not a problem. I select the blocks I want in the timeline and then select the 'merge captions' button in the text panel as seen below:
However, what's been happening seemingly randomly is that I select two caption blocks in the timeline, but the 'merge captions' button remains greyed out in the text panel.
As you can see from this screenshot, one of the captions that is selected in the text panel is NOT one of the caption blocks selected in the timeline. When this has happened I've left those captions, gone on to finish the others in the sequence, then found that I was able to merge when I returned to the problem caption blocks later.
I think this is a bug, and that you should report it.
The bug is better described as a lack of consistency in the timeline vs Text panel selections, not in whether merge will operate or not. As you show, if the captions in the Text panel are not contiguous, merge is not available. And the problem is that even when you select two adjacent caption segments in the timeline, different segments may be selected in the Text panel.
In my quick test (15.2 release version), I could not get this to happen. Is that the version you are using? If so, can you test in the latest Beta?
One option, since you are using the merge button in the Text panel, might be to map the "merge" keyboard shortcut. Unfortunately, it is not yet operational: