As you can see in the attached image, after I've bought a city state with a gifted Merchant of Venice (I've filled the full Patronage tree), the following negative diplomatic modifier appears in my relationship with England: "You have killed City-States under their protection!". I think this is a bug.
I've also attached the savegame (with the gifted Merchant of Venice as the current active unit, so you can verify that the negative diplo modifier didn't exist before I bought the CS).
I've also attached the savegame (with the gifted Merchant of Venice as the current active unit, so you can verify that the negative diplo modifier didn't exist before I bought the CS).