Hi angine -
If you click on the Material you want to replace and the Material Instance you want to replace it with then right click Asset Actions >> Replace References.
You will then get a window like this one:
The Message can be a little confusing but you want to select the asset (of the 2) that you want to still exist when this is all over. In my example I want all Material.M_TestC to be replaced with Material Instance.MI_TestA. (Note the balls in the background all have M_TestC applied.
Click Consolidate Assets and you will get this:
Thank You
Eric Ketchum