Team Foundation Server: Does TFS do auto-merge or a local merge tool?

We evaluate whether to buy the standard or professional version of the Araxis merger. The standard version does not have automatic merging, but it does not matter if TFS does this for us. But does it?

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TFS supports auto-merge and, unfortunately, there is no extensibility point that would allow you to enable Araxis auto-merge features (which, to be honest, is probably better than the auto-merge that we sent to TFS 2010). We have improvements in our automatic merge, part of TFS 11.

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