I can't reproduce this. I've created a simple add-on, customized the template in a style and then upgraded the add-on with a newer version that changed the template. The template then showed up as out of date and could be merged. I've attached the add-on (both versions) here.
However, I note one thing in your screenshot that's very important: it's showing versions rather than edit dates. This likely indicates that there's no last edit date for the parent version of the template (or the custom version was edited more recently).
Was this add-on installed in 1.1? If so, was the last update before upgrading to 1.2? If that's true, then you can't merge because the necessary data isn't there. I think if you installed in 1.1 and upgraded in 1.2 that should still be fine.
I suppose another edge case could be that the template version changed, but nothing actually changed in the template, so it hasn't triggered edit date updates. I may need to update the edit date for that case as well. (If you can confirm whether that's the case here, that'd be helpful.
