Create Merger Diagram
What we are doing is choosing internal states that can have the same code, though the total states will still be different (since they will not have the same code for the same inputs; if that were possible they would have been redundant).
Two rows of a reduced primitive Mealy flow table are compatible and can be merged into a single row iff there are no state or output conflicts in any column.
???Draw a line between any pair of rows (states) which are compatible and can be merged.
???Choose the sub-groups of fully-connected rows that will result in the maximum reduction. In this case, {1,2} and {3,5,6} are best. We could also have chosen {1,3} and {5,6}, or just {3,6} in which case no others would be permitted.