There are two problems with your approach.
First is using -b which turns on the 'binary' setting and the binary setting will ignore fileformat. See this snippet of :help 'binary':
Also, 'fileformat' and 'fileformats' options will not be used, the file is read and written like 'fileformat' was "unix" (a single <NL> separates lines).
The second part ...
As stated in your comment you have cindent and cinoptions set like:
The options cindent should only be set for the file types you want to use it. It is set automatically for the C or CPP file types (assuming you have filetype indent on in your vimrc [or better: filetype plugin indent on]).
Remove the line set ...
Select the lines you'd like to merge, enter an Ex command by typing a colon : in normal mode. Then type this command:
The entire command should look likewise:
This is actually a tweaked version of the @insidepower's command that replaces space-indentations as well as newline characters.