I did something similar at the end of 2003. A friend of mine and I were both running sites in the same industry, although really non-competing, we both dealt with very specific different sections of the industry, and sometimes they crossed over in a complimentary way - well, mine's kind of broad across the whole industry, his was pretty specific.
Anyway, he wanted to dedicate more time to other things, but he cared about the site, the content and the community and didn't want to just see it all end. At the time, both my site (Site A) and his site (Site B) were pretty similar in traffic & registered users. They were both smallish sites, with around 1400 registered users each (which of the two of us had the most users at any given time varied on an hourly basis), with around 3,000-4,000 unique page views per day.
Both sites were running the same software, and both sites were merged (Site B's content & userbase was merged into Site A). After duplicate users were removed from the database, it totalled around 2500 registered users, doubled the amount of content on the site, and after sending out a one-time E-Mail to all of the users in the combined userbase, the number of posts in the forum quadrupled the following month. During Jan '05, the forum had around 45x as many forum posts as it did during Dec '03 (just before the merger was announced).
Now, I'll introduce you to Sites C & D. These are two sites that I just acquired this past week - and both aree in the same industry as my original, and existing Site A, as well as Site B which I acquired at the end of '03. Site C has about 500 registered users, around 4,000 unique page views per day, the forums are not quite stagnant (they get more than a handful of posts each day).
Site D is actually a derivative of another Site, which has a pretty good registered user database (around 1200 members), and was thriving last year, however due to technical problems and shifting the site from one server to another to another, traffic basically died (although it won't be hard to get it flowing again). Right now Site D is getting about 3000 unique page views per day, but zero posts in the forums (in fact, only one since the end of November - the forum software died then, and I only got it back up and running after I acquired the site a few days ago).
Site C serves a pretty specific audience within my industry, and while it has strayed slightly to be a little broader than it was originally intended (I'm good friends with the previous owner, have been for years, and know his original thoughts & intentions for the site), has remained pretty focused on the intended subject. This site will remain a separate entity, although it could be quite happily merged into Site A at some point.
Site D, on the other hand, is pretty much a direct competitor to Site A, once it gets back into the full swing of things. Registered users are coming back to the site daily, and since I fixed the forums, traffic (page views) has increased, even though interactivity (posting in the forums) hasn't yet. Common sense may suggest merging this with Site A. Assimilate the userbase, assimilate the content, E-Mail everybody to let them know what's going on, and be done with it.
But, I've chosen a diferent path. The cost of acquiring the two sites was not that great within the grand scheme of things, although the advantage that they would offer by being merged into Site A would not drastically increase the income of Site A enough to cover their acquisition costs.
Sites C & D, if left in their current states, continued to earn the income that they have in the past several months, it would take 18-24 months for them to pay for themselves.
Site C, as I said, is a pretty target (but small) audience within my industry, and will remain as a separate entity, and would better suit both Site A and the community if it were kept as a separate entity. It will have all the random additions removed, and the site will once again focus on its initial subject matter - also it's rendering a REALLY bad template, so Google hates it right now, so that'll have to be fixed.
Site D, being a competing site, also has a few technical & aesthetic problems that need to be addressed, however as I stated, merging this into Site A would not really bring any benefit to Site A, or my income at this time. In fact, merging it would basically give me the same result as simply nuking everything that's on the existing site, and I'm simply forking over cash for it to not exist and compete with Site A.
But, I'm going to continue with Site D until it does get flowing again and presents enough of an advantage to Site A where merging it would really benefit.
So, not including my original site which I completed from scratch myself, there's 3 sites that I've acquired that were all treated differently.
Site B (related, non-competing) was instantly merged
Site C (related, non-competing) will never be merged
Site D (directly competing on a currently smaller scale) will eventually be merged once it has something to really offer to Site A and that Site D big enough that the merging is a big deal for my target audience.
I don't know if my plans will work the way I hope, only time will tell, although I have put a LOT of thought into whether certain things should be merged, deleted and added to each site.
If your Site B is only getting 10% of the traffic & visitors that your Site A is, personally I wouldn't merge unless there were a lot of extra content to offer, and some knowledgable and highly contributing/charismatic forum members.
If you do decide to merge though, as somebody else pointed out, be sure not to alienate the Site B community. You have to sell them on the fact that merging would be a good idea. How is merging going to benefit them and their experiences on your website(s)? If you're writing out an E-Mail to announce that the sites are going to merge, when you're stating what will happen, imagine somebody asking you "So what?" at the end of every line you type.
And hold off on clicking the send button once you think it's complete. Stick it in your drafts, go and do something for a couple of hours and come back to it. Think out the E-Mail as much as possible before you send it. You may have to rewrite it 3 or 4 times before you're really happy with it (it may not be a big deal to you, but it is for the community that already exists on Site B). Try to keep it short and to the point, but don't sound short that you're just trying to fob them off with "This is what's happening, this is the way it is, deal with it". Explain to them how this is good for them :)
Before you even decide whether you do or not, just get some feedback from the existing members of the smaller community. Does this site have moderators that you will have to take into consideration? Are you going to keep them as moderators once the merger happens, or are you going to ditch them and let your existing team on the larger site run the show?
As has been shown in other threads here, your moderators determine the type of users you get on your site, and their general behaviour. Keeping or booting them has positive and negative aspects depending on the individuals in question.
If you decide to keep them, are there going to be clashes between them and moderators on your existing site?
If you decide to dump them, are half the regular users on the smaller site going to leave with them?
You may ultimately decide that it's best not to merge it. If you are in an industry where there are very obvious divides of opinion, you can steer one site one way, and the other site the other way to avoid major hassles & arguments on the whole.
Nobody can really tell you whether you should or shouldn't merge without knowing all the facts and the general personalities of the people involved.
I wish you luck with whichever you decide. It's not always as straightforward as you'd think :)
Man, how long have I been typing? - Here I sit with the laptop, it's 5:14am. I guess this is what happens when you've been laid up in bed practically paralyzed for 3 days, heh.