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The ArcMap GeoProcessing wizard Merge tool fails when trying to merge layers.
One of the layers being merged may contain a record with no shape, or in other words, a record that has a null geometry.
This issue has been addressed in ArcGIS Version 8.1.2.
In ArcGIS 8.1, determine which layer contains records with null geometry and delete the offending records. If the layer is a shapefile, you can export the layer to a new shapefile. Exporting from a shapefile to a new shapefile will clean the output of any null geometries.
To identify and delete the records with null geometry, do the following for each layer you wish to merge.
Make sure all your features are visible.