In prior versions, the Diff Merge Tool selection was being forgotten every time the app was opened. In the current version, the selection remains, but the subsequent behavior is the same. That is, when you select to Launch External Merge Tool it appears to be doing something (the dialog opens) but the merge tool is never launched. Sometimes you can see the Unstaged files refresh in the background and show the 4 temp merge files created.

The solution is to open the options, select another merge tool, and then switch back to our selected option (P4Merge in this case). After that, the merge functionality works as expected. This has to be repeated every time the app is opened fresh.