When you click on the "Merge this $entity with another" link right now, it reloads the page and puts something at the bottom which you probably won't even see (most of the time it's off the bottom of the screen). I think this will confuse people who think nothing's happening when they click the link.
You also have to go to the search box, select the entity type you want to search for and enter what you want to search for yourself, so it could be a lot easier to use too.

I think it would be better if the first time you click the link, it opened an inline search for that entity type instead. The inline search would default to the current entity name and when you find the entity you want, clicking the submit button would take you to /$entity/merge where you can submit the edit (this is roughly how it works in mason).
The /$entity/merge page would also mention that you can search for more $entities rather than submitting the edit now if you want to merge more than one.