MacOS – Merge folders is not working

I'm trying to merge two folders with the same name but different contents in Finder on OSX Mountain Lion.

The folder is located on my iMac and I am dragging a dropping to my External Harddrive where there is a folder with the same name.

I was getting the option to "Merge" previously but now it only shows "Replace".

I've tried holding down the option key and it still doesn't work.

If i drag it the reverse way (from external HD to my iMac) it works.

I also created a new user profile and it works fine both ways on there, so it's making me think I've changed a setting on my current profile but I can't see any options in any of the preferences.

It sounds like a little thing but it really bugs me and is an inconvenience so if anybody can help I'll be very grateful.

Thanks