When I try to use shaper tool to merge two paths, it creates all that extra space up top.
That is the Shaper tool (not the Shape Builder)
Just select the Shape Builder Tool (Shift+M) and simply drag to join them.
If you want to use the Shaper Tool (as it is less destructive and more forgiving on mistakes later on) you can draw a little squiggly line across the areas you don't want (using the Shaper Tool) and they will "get erased".
Read more about these tools at Adobe