Quote Originally Posted by Procrustes
I've seen it said that that is how valor works when you merge - you can see the new unit gets something like a weighted average of the two source units. I assumed it worked the same for armor, but perhaps not.
Well, it can be tested one way. Maybe someone can do this because I don't have the patience it requires ;)

Here: take a unit with an upgrade that has only the leader left, or merge with another, so that all men go the the other unit only the leader remains. Anyway: you have a 1 man unit with lets say silver upgrade. Now fill the unit up with a no upgrade unit. Make sure that (theoretically) only 1 man has the upgrade in the unit (the leader). Now go to a battle with this unit and make sure the leader of the unit dies, but there are survivors in the unit. Next year check the unit whether it has the upgrade or not. q.e.d. (either way )