To merge the two pieces of footage I just keyed out the white of the distorted footage and then applied masks to areas that I didn't want to include.
As i said before the distorted images reminded me of distressed film, so I applied a sepia filter to the distorted footage. I then offset the footage by half a second with the original footage so that it gave the impression that the type was burning an image into the film.
Finally I inverted the distorted footage via hue. This turned the Sepia a blueish colour.
All that was left to do was apply inverted frames to the two pieces of footage to create a sort of strobe effect that can be seen on some of the original fluxus films.