Merge operations cannot be done on binary files. However, a binary file can have a status of Needs Merged if it was modified locally and then checked out after another user checked in a change to the file. You can overwrite the version in the repository and change the status to Edited by selecting Merge. A warning dialog will appear.
Click Yes and the status of the file becomes Edited and the working file is not touched.
Click on No to cancel the operation. The file will retain the Needs Merged status.