From a common-sense commercial view, BMI being merged into BA would be a Good and Sensible Thing. There are a number of non-competitive BMI routes, and the days of the combined operation having a monopoly have long passed with the emergence of Easy and others on parallel routes. As an alternative to BMI just fadng away, it is surely attractive.
If part of the merger was a requirement that the number of domestic slots out of Heathrow was maintained, then there would be encouragement for a more effective set of UK connections through Heathrow that would develop (restore) BA's business in the regions.
Alas you now have seemingly self-appointed organisations like the OFT and Competition Commission (UK) and the European Commissioner for Competition (Brussels), all of whom seem to have been penetrated by oddball academic economists with their own angels-dancing-on-a-pinhead competition theories. Actually aviation has not (yet) suffered as badly from them as some other transportation businesses. But you can see it coming, as each tries to grab the headlines from the other by demanding ever more Heathrow slots are taken away in any merger and given to overseas carriers (who gleefully take them and the business, but behind the scenes must feel the UK government are complete idiots). How are Lufthansa and Air France freely allowed to build up operations at their own hubs with far more dominance that any BA/BMI combination at Heathrow might have ?
Lastly, not to feel left out, and to finally put the cherry on it, the DfT come along, not with any support for UK carriers, but with restrictions and civil service makeworks that put such restrictions on sensible arrangements for connecting passengers at UK airports, compared to Amsterdam, Frankfurt, etc, that ANY carrier trying to have a UK hub feels they are fighting with both hands and both feet tied behind their backs.