Merbabies

Merbabies is a short from the Silly Symphonies series that was released on December 9, 1938. It and Winnie the Pooh and a Day for Eeyore are the only two Disney shorts to be outsourced to another studio. In the case of Merbabies, it would be made by Ruldoph Ising and Hugh Harman over at MGM, who worked with Walt in the early years.

Summary
Similar to Water Babies, adorable redheaded 'merbabies' materialize out of the crashing surf and proceed to the sea floor where they conduct a circus along with a variety of sea creatures.