We've run into issues similar to this fairly frequently. The settings that seem to work best for us on most occurrences is to use aggressive merge with take branch options.
In general, cross project merge can lead to a lot of issues, even if they are backed by the same repository. We've severely limited the amount of refactoring that is allowed within our code base to prevent issues with cross project merge as refactoring will cause Harvest to lose references to versions and things will look like they disappear between harvest projects. When we run into issues with CPM, we tend to back out what we can and then use an external tool to merge the two harvest projects together.