they are moral and wouldn't offer a deal unless it was beneficial according to both utility functions being merged (not just according to their value of happiness).

I guess whether it is beneficial or not depends on what you compare to? They say,

he obvious starting point upon which to build further negotiations, is to combine and compromise the utility functions of the three species until we mutually satisfice, providing compensation for all changes demanded.

So they are aiming for satisficing rather than maximizing utility: according to all three before-the-change moralities, the post-change state of affairs should be acceptable, but not necessarily optimal. Consider these possibilities:

1) Baby-eaters are modified to no longer eat sentient babies; humans are unchanged; Superhappies like art.

2) Baby-eaters are modified to no longer eat sentient babies; humans are pain-free and eat babies; Superhappies like art.

3) Baby-eaters, humans, and Superhappies are all unchanged.

I think the intention of the author is that, according to pre-change human morality, (1) is the optimal choice, (2) is bad but acceptable, and (3) is unacceptable. The superhappies in the story claim that (2) is the only alternative that is acceptable to all three pre-change moralities. So the super-happy ending is beneficial in the sense that it avoids (3), but it's a "bad" ending because it fails to get (1).