Rick has decided to hand Michonne over to the Governor as per the deal, but he's not telling everyone about it beforehand; just Hershel, Daryl, and Merle, because he's going to need the Dixons' help getting the package wrapped, if you know what I mean. During final preparations, however, the ghost of Lori shows up at an opportune time for once, and he decides to call it off. Unfortunately, Merle has already put the plan in motion and is on the way to deliver Michonne himself, because he knew damn well that Rick was going to flinch. Merle has apparently decided that it's his job to do the group's dirty work, and if that's what it takes so he can hang with his brother, so be it.
But not everyone is about to let it happen. Rick wants to go after Merle and Michonne, but Daryl insists on being the one to do it. And Michonne is waging an effective psychological campaign on the emerging outlines of what can only be Merle's conscience. While Glenn takes advantage of the lull at the prison to propose to Maggie (successfully), and Merle & Michonne survive a few waves of zombies together, she eventually gets through to him. He returns her sword and lets her go, but won't go back with her, saying he's got something else to do first. What that turns out to be is gathering a herd of walkers and leading them to the meeting place where the Governor and his men are waiting for Rick to show up with Michonne. Between those walkers and his sniper skills, Merle manages to take out a fair number of the Governor's henchmen, though he ends up losing a fight with the man himself and getting shot.
At the prison, Rick assembles what remains of the group and not only tells them the truth, but abdicates the throne, reinstating their democracy and saying that it's up to them whether they stay or go. By the time Daryl catches up with Merle, it's too late; the Governor and his men are long gone. And so, effectively, is Merle, even though his dead body's still walking around. Yes, Daryl has to re-kill his own brother. It's sad for Daryl, to be sure, but let's face it; this was just about the best-case scenario for the whole Dixon situation.
Out by the inner fence, Rick has apparently just told Hershel and Daryl his plan to turn over Michonne to the Governor and tell the others later, after it's too late to do anything about it. Daryl doesn't like it, especially the part where they're going to have to trick Michonne into coming with them; "Just ain't honest, man," he grumbles. Rick says no one else dies if they do this, so Daryl reluctantly agrees. Rick says they'll need someone else, and Daryl offers to recruit Merle, or at least help Rick do it, but Rick insists on doing it alone.
Inside the otherwise empty cell block, Rick finds Merle shredding mattresses on the upper level and strewing the wreckage all over. Looking for drugs, of course. "This place must have been no fun at all," he's finally forced to conclude. After Rick offers Merle a little unsolicited therapy in the form of asking Merle whether even he knows why he does stuff, Rick asks for Merle's help with Michonne, and with keeping it quiet. Merle sarcastically says he's honored to be in the inner circle, and then drops some Gubernatorial knowledge on Rick, telling him that his old boss used to bash skulls and cut throats, claiming he didn't want to waste bullets. As for Michonne, "He ain't gonna kill her, you know. He's just gonna do things to her. Probably take out one of her eyes .Both of them, most likely. You'd let that happen for a shot? You're cold as ice, Officer Friendly." But he's not about to try to talk him out of it, either. He tells Rick he'll need wire rather than rope that Michonne can chew through, and admits that Rick is right. "I'm a damn mystery to me." Poor Michael Rooker, having to ask the director his motivation every week and being told, "The hell if you know, nutbar." He steps out of the shadows and adds, "And I know you, Rick. Yeah, I thought a lot about you. You ain't got the spine for it." Rick says they have until noon, and goes off to leave Merle looking evil on his own.
Rick rushes outside to see his people carrying out a minor tactical operation in the outer yard. Carl and Maggie are busy making noise in the dog run, trying to attract as many of the walkers as they can. Meanwhile, Hershel drives the pickup into the yard, and Daryl and Glenn unload a big coil of concertina wire nailed to a spiked plank while Michonne slashes a few walker skulls on her way to meet them for the ride back. Hershel drives the pickup on in through the inner gate, which Rick opens. Apparently this was all to prevent the Governor from driving up to the gate again and risking severe tire damage -- Michonne's idea. Michonne says they don't have to win, just make themselves more trouble than they're worth. Yeah, considering what the Governor went through last week to get Andrea, they're going to add a lot more layers of trouble. Carl & Maggie join them and they all head inside, Daryl staring guilt-beams at Rick.