Merged conversations are a feature that's immensely useful for users, and I can't fathom their motives behind removing that feature.
When they started deprecating Hangouts as an SMS app [1], Facebook swooped in and made their Facebook Messenger an SMS-handler app [2]. Given its massive install-base and much more assertive product strategy, I wouldn't be surprised to see Google's unclear strategy be their gain.
[1] http://arstechnica.com/gadgets/2016/01/google-hangouts-7-0-f...
[2] https://techcrunch.com/2016/06/14/facebook-messenger-texting...