They could never do a merger for anti-trust and dual sourcing concerns...
Having said that, it MIGHT open up the potential for AMD running (some, all?) chips through Intel's fabs and actually enabling a nearly competitive playing field.
The best thing that the (US) government could do for the market would actually be to force Intel to split in to a fabrication company and a chip design company. That would enable the military to contract fabrication of higher-end validated CPUs on US soil from whichever sources they wanted...