diff --git a/mercurial/merge.py b/mercurial/merge.py
--- a/mercurial/merge.py
+++ b/mercurial/merge.py
@@ -415,14 +415,15 @@ def manifestmerge(repo, wctx, p2, pa, br
         if partial and not partial(f):
             continue
         if n1 and n2:
-            if True:
-                fa = f
-                a = ma.get(f, nullid)
-                if a == nullid:
-                    fa = copy.get(f, f)
-                    # Note: f as default is wrong - we can't really make a 3-way
-                    # merge without an ancestor file.
-                fla = ma.flags(fa)
+            if f not in ma:
+                # Note: f as ancestor is wrong - we can't really make a 3-way
+                # merge without an ancestor file.
+                fa = copy.get(f, f)
+                actions['m'].append((f, (f, f, fa, False, pa.node()),
+                               "both created"))
+            else:
+                a = ma[f]
+                fla = ma.flags(f)
                 nol = 'l' not in fl1 + fl2 + fla
                 if n2 == a and fl2 == fla:
                     actions['k'].append((f, (), "keep")) # remote unchanged
@@ -436,7 +437,7 @@ def manifestmerge(repo, wctx, p2, pa, br
                 elif nol and n1 == a: # local only changed 'x'
                     actions['g'].append((f, (fl1,), "remote is newer"))
                 else: # both changed something
-                    actions['m'].append((f, (f, f, fa, False, pa.node()),
+                    actions['m'].append((f, (f, f, f, False, pa.node()),
                                    "versions differ"))
         elif f in copied: # files we'll deal with on m2 side
             pass
diff --git a/tests/test-rename-merge2.t b/tests/test-rename-merge2.t
--- a/tests/test-rename-merge2.t
+++ b/tests/test-rename-merge2.t
@@ -343,7 +343,7 @@ args:
    ancestor: 924404dff337, local: 62e7bf090eba+, remote: 49b6d8032493
    preserving b for resolve of b
    preserving rev for resolve of rev
-   b: versions differ -> m
+   b: both created -> m
   updating: b 1/2 files (50.00%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -413,7 +413,7 @@ m "um a c" "um x c" "      " "10 do merg
    ancestor: 924404dff337, local: 86a2aa42fc76+, remote: af30c7647fc7
    preserving b for resolve of b
    preserving rev for resolve of rev
-   b: versions differ -> m
+   b: both created -> m
   updating: b 1/2 files (50.00%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -446,7 +446,7 @@ m "um a c" "um x c" "      " "10 do merg
    a: other deleted -> r
   removing a
   updating: a 1/3 files (33.33%)
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/3 files (66.67%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -478,7 +478,7 @@ m "um a c" "um x c" "      " "10 do merg
    a: remote is newer -> g
   getting a
   updating: a 1/3 files (33.33%)
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/3 files (66.67%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -511,7 +511,7 @@ m "um a c" "um x c" "      " "10 do merg
    a: other deleted -> r
   removing a
   updating: a 1/3 files (33.33%)
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/3 files (66.67%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -543,7 +543,7 @@ m "um a c" "um x c" "      " "10 do merg
    a: remote is newer -> g
   getting a
   updating: a 1/3 files (33.33%)
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/3 files (66.67%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -574,7 +574,7 @@ m "um a c" "um x c" "      " "10 do merg
    preserving b for resolve of b
    preserving rev for resolve of rev
    a: keep -> k
-   b: versions differ -> m
+   b: both created -> m
   updating: b 1/2 files (50.00%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -609,7 +609,7 @@ m "um a c" "um x c" "      " "10 do merg
    a: prompt recreating -> g
   getting a
   updating: a 1/3 files (33.33%)
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/3 files (66.67%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
@@ -643,7 +643,7 @@ m "um a c" "um x c" "      " "10 do merg
    preserving rev for resolve of rev
    a: prompt keep -> a
   updating: a 1/3 files (33.33%)
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/3 files (66.67%)
   picked tool 'python ../merge' for b (binary False symlink False)
   merging b
diff --git a/tests/test-up-local-change.t b/tests/test-up-local-change.t
--- a/tests/test-up-local-change.t
+++ b/tests/test-up-local-change.t
@@ -188,7 +188,7 @@ create a second head
   picked tool 'true' for a (binary False symlink False)
   merging a
   my a@1e71731e6fbb+ other a@83c51d0caff4 ancestor a@c19d34741b0a
-   b: versions differ -> m
+   b: both created -> m
   updating: b 2/2 files (100.00%)
   picked tool 'true' for b (binary False symlink False)
   merging b