diff --git a/pkg/generator/merge/text_merger.go b/pkg/generator/merge/text_merger.go
index e98a0ade9d..83593801d3 100644
--- a/pkg/generator/merge/text_merger.go
+++ b/pkg/generator/merge/text_merger.go
@@ -53,15 +53,29 @@ type MergeResult struct {
 //   - theirs: The template's version (with template updates)
 //
 // Returns the merged content or an error if conflicts exceed threshold.
+//
+// The output also preserves each input's exact trailing-newline count; see
+// the newline-handling comment on the diff3.Merge call below for why.
 func (m *TextMerger) Merge(base, ours, theirs string) (*MergeResult, error) {
 	defer perf.Track(nil, "merge.TextMerger.Merge")()
 
 	// Perform the 3-way merge using diff3.
 	// Parameter order: (mine/ours, original/base, yours/theirs).
+	//
+	// Each input gets one newline appended before diff3 ever sees it. diff3's
+	// line reader (bufio.Scanner) can't tell how many trailing newlines an
+	// input had — for N >= 1 trailing newlines, its join step always
+	// reconstructs exactly N-1 (it loses exactly one, regardless of how many
+	// there were; for N == 0 there's nothing to lose). Appending one newline
+	// here bumps every input's count to at least 1, so that guaranteed loss
+	// of exactly one newline cancels out and the original count survives
+	// (whichever side's content ends up dominating a given region carries
+	// its own newline count through unaffected, since the +1/-1 cancellation
+	// applies to each side independently).
 	mergeResult, err := diff3.Merge(
-		strings.NewReader(ours),
-		strings.NewReader(base),
-		strings.NewReader(theirs),
+		strings.NewReader(ours+newlineSeparator),
+		strings.NewReader(base+newlineSeparator),
+		strings.NewReader(theirs+newlineSeparator),
 		false, // Don't show base in conflict markers.
 		"Ours",
 		"Theirs",
diff --git a/pkg/generator/merge/text_merger_test.go b/pkg/generator/merge/text_merger_test.go
index 222f2efd98..7eb4ea3748 100644
--- a/pkg/generator/merge/text_merger_test.go
+++ b/pkg/generator/merge/text_merger_test.go
@@ -752,3 +752,119 @@ text`,
 		})
 	}
 }
+
+// TestTextMerger_TrailingNewlinePreservation asserts exact byte-for-byte
+// merge output, trailing-newline count included, split into merges with no
+// genuine ours/theirs divergence (result must equal the unchanged content
+// verbatim) and genuine template-only changes where ours never diverges from
+// base (result must equal theirs verbatim). See Merge's doc comment for why
+// each input gets one newline appended before diff3 runs.
+func TestTextMerger_TrailingNewlinePreservation(t *testing.T) {
+	tests := []struct {
+		name   string
+		base   string
+		ours   string
+		theirs string
+		want   string
+	}{
+		{
+			name:   "identical base/ours/theirs",
+			base:   "line 1\nline 2\nline 3\n",
+			ours:   "line 1\nline 2\nline 3\n",
+			theirs: "line 1\nline 2\nline 3\n",
+			want:   "line 1\nline 2\nline 3\n",
+		},
+		{
+			name:   "theirs equals ours though base differs",
+			base:   "line 1\nline 2\n",
+			ours:   "line 1\nline 2\nline 3\n",
+			theirs: "line 1\nline 2\nline 3\n",
+			want:   "line 1\nline 2\nline 3\n",
+		},
+		{
+			name:   "unchanged, one trailing newline",
+			base:   "line 1\nline 2\n",
+			ours:   "line 1\nline 2\n",
+			theirs: "line 1\nline 2\n",
+			want:   "line 1\nline 2\n",
+		},
+		{
+			name:   "unchanged, no trailing newline",
+			base:   "line 1\nline 2",
+			ours:   "line 1\nline 2",
+			theirs: "line 1\nline 2",
+			want:   "line 1\nline 2",
+		},
+		{
+			name:   "unchanged, blank line at EOF (two trailing newlines)",
+			base:   "line 1\nline 2\n\n",
+			ours:   "line 1\nline 2\n\n",
+			theirs: "line 1\nline 2\n\n",
+			want:   "line 1\nline 2\n\n",
+		},
+		{
+			name:   "unchanged, two blank lines at EOF (three trailing newlines)",
+			base:   "line 1\nline 2\n\n\n",
+			ours:   "line 1\nline 2\n\n\n",
+			theirs: "line 1\nline 2\n\n\n",
+			want:   "line 1\nline 2\n\n\n",
+		},
+		{
+			name:   "unchanged, internal blank line, single trailing newline",
+			base:   "line 1\n\nline 2\n",
+			ours:   "line 1\n\nline 2\n",
+			theirs: "line 1\n\nline 2\n",
+			want:   "line 1\n\nline 2\n",
+		},
+		{
+			name:   "genuine change, theirs ends with blank line at EOF",
+			base:   "line 1\nline 2\n\n",
+			ours:   "line 1\nline 2\n\n",
+			theirs: "line 1\nline 2\nline 3\n\n",
+			want:   "line 1\nline 2\nline 3\n\n",
+		},
+		{
+			name:   "genuine change, theirs keeps single trailing newline",
+			base:   "line 1\nline 2\n",
+			ours:   "line 1\nline 2\n",
+			theirs: "line 1\nline 2\nline 3\n",
+			want:   "line 1\nline 2\nline 3\n",
+		},
+		{
+			name:   "genuine change, theirs has no trailing newline",
+			base:   "line 1\nline 2",
+			ours:   "line 1\nline 2",
+			theirs: "line 1\nline 2\nline 3",
+			want:   "line 1\nline 2\nline 3",
+		},
+		{
+			name:   "genuine change, theirs adds trailing blank line (EOF newline count only)",
+			base:   "line 1\n",
+			ours:   "line 1\n",
+			theirs: "line 1\n\n",
+			want:   "line 1\n\n",
+		},
+		{
+			name:   "genuine change, theirs removes trailing newline (EOF newline count only)",
+			base:   "line 1\n",
+			ours:   "line 1\n",
+			theirs: "line 1",
+			want:   "line 1",
+		},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			result, err := NewTextMerger(50).Merge(tt.base, tt.ours, tt.theirs)
+			if err != nil {
+				t.Fatalf("Unexpected error: %v", err)
+			}
+			if result.Content != tt.want {
+				t.Errorf("Merge result mismatch\nGot:  %q\nWant: %q", result.Content, tt.want)
+			}
+			if result.HasConflicts {
+				t.Errorf("Unexpected conflicts: %d", result.ConflictCount)
+			}
+		})
+	}
+}