SYMPTOM:
"Merge Row Header Cells" option allows users to specify that the rows with repeated values should be merged, so that the value can be displayed only once in the center of the merged cells as shown below.

After the report is defined in this way, the export to Excel from Developer also shows the rows merged properly.

However, when the same report is delivered as Narrowcast Excel document, the cells are not merged:

CAUSE:
This is a known issue with Strategy Narrowcast.
ACTION:
Currently this issue is not scoped for any upcoming scheduled release.
WORKAROUND:
Use a Narrowcast Linked Document instead of a Narrowcast Document.