The stats the last three years are substantially better.
Merrill was at 2.0 fWAR in 2019, good for 48th among qualified SP and 67th among arms with 100+ IP. That is definitely closer to #3/4 SP performance. He did not pitch like a number 5. He's about as good as these free agent SP: Gausman, Miley, Martin Perez, Porcello, Hamels, Roark, Bailey, Wood, Gio Gonzalez. Perhaps that's a #5 SP on a 95 win team.
Signing a guy like Lindblom to a deal like 2/$8 or 3/$9 or whatever is precisely how you leverage knowledge (scouting and data) to get the rare surplus value deal on the FA market. Toronto should sign him if they think he's any good (they might not).
I agree with you though that Lindblom should be signed along with a better SP. There aren't many options in that gap though. If we assume Cole, Strasburg, and Wheeler (at this point) are not realistic options and you are left with Ryu (probably doesn't want to come to Toronto) and Keuchel. Bumgarner might get an albatross contract and is not trending in the right direction. So it's basically Keuchel or bust!