Was the ticket valid BD/LH only? If so it could not be transferred to BA
Was the ticket a through fare to MUC, in other word no stopover in LON? If so the fare would need to be recalculated without the MUC flight if you elected to travel to LHR only.
Because the alternative was not acceptable you agreed to a refund as you stated previously. Yes be annoyed at the situation but remember it was brought about by LH cancelling the LHR/MUC flight.