I don't think a merger is unreasonable, but I think keeping them seperate while making the UPX a new dedicated electrified line is enough to transform the west end. Keeping this new hypothetical UPX and the OL seperate gives a huge amount of flexibility to a western OL extension - whether that's continuing west towards the Queensway, turning up to serve Dufferin and eventually Jane, or as some have mentioned, branching to do both. Just off currently planned stations on the Kitchener corridor, this new UPX line would get connections to Line 1 at Union, 510, 504, Line 2, 512, Line 5, Line 6 and the airport.
With that line in place, the OL extension could fill in missing gaps by heading north on Dufferin with stops at King, Queen, Dundas/College (at this point the streets are close enough to serve 1 out of 2), Bloor, Dupont, then veer west and north up Jane to connect to Line 6. I'd imagine these 2 western lines could have a Junction interchange where Dupont/Annette/Dundas W meet. And in my opinion if the OL were to head up north on Dufferin I'd move King-Liberty's proposed location slightly closer to the Strachan/Wellington area to serve the bulk of the new LV density, then add an OL/UPX interchange closer to the edge of Joe Shuster Way/ Sudbury/Dufferin/Queen to get a trifecta of stations in Liberty Village. In combination with streetcars/busses that feels like it gives the West end a great improvement to transit connections.