Had Merle managed to kill the Governor they cold have gone into Woodbury and unearthed the heads in tanks and the torture room that's been hidden from the peoples sight. With him alive it isn't an option because anyone demanding to be shown what's behind doors would be killed, even in the sight of the populous.
The Governor has already shown the town his more ruthless side when he walked out and shot the guy who'd been bitten. No remorse and no need to answer to the people his reasoning.
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