The dynamic model files (files with .mdl and .ldm extension) are backed up in the .migrate.bkp.<version> directory. These files are not considered by sm_migrate utility for merging. Remove the .ldm file from the local directory of the new installation. Recompile the .mdl file before it is used in the new installation. A new .ldm file will be generated once you recompile the .mdl file.

The VMware Smart Assurance Dynamic Modeling Tutorial explains the concepts and methods of dynamic modeling.