Text does wrap in a merged cell, but the auto row height doesn't work.
The workaround is to manually set the row-height to display all of the text.
However, the very next auto rowheight operation will reset the row height.
To circumvent this, if the merged cells are in a single row (horizontal merge), select an empty cell in the same row, enter edit mode (F2) and insert the required no. of linefeeds (multiple Alt+Enter).