In this article we investigate statistical machine translation (SMT) into Germanic languages, with a focus on compound processing. Our main goal is to enable the generation of novel compounds that have not been seen in the training data. We adopt a split-merge strategy, where compounds are split before training the SMT system, and merged after the translation step. This approach reduces sparsity in the training data, but runs the risk of placing translations of compound parts in non-consecutive positions. It also requires a postprocessing step of compound merging, where compounds are reconstructed in the translation output. We present a method for increasing the chances that components that should be merged are translated into contiguous positions and in the right order and show that it can lead to improvements both by direct inspection and in terms of standard translation evaluation metrics. We also propose several new methods for compound merging, based on heuristics and machine learning, which outperform previously suggested algorithms. These methods can produce novel compounds and a translation with at least the same overall quality as the baseline. For all subtasks we show that it is useful to include part-of-speech based information in the translation process, in order to handle compounds.