I have a Merchant of Venice, I have moved next to a city state, but the only option I'm given is a trade mission. It has trade mission bonuses, but I'd really like a puppet. I've seen a video where the Merchant has an action icon that looks like a trade mission, but has a gold coin on top of it, but I only see the Mission/Move/Do Nothing/Sleep/Embark/extra actions, and the only extra is delete the unit.
The city state is allied and under protection of Greece, but I haven't read about that as a restriction.
Other Venice stuff is working - 2*trade routes, free Merchant, trade mission bonus, and no settlers allowed.
I've never played Venice before, so I'm not sure if there a rule I'm missing or if it is a bug.
I am playing Steam version BNW on a Mac - in case that makes any difference.