The multiphase Whitham modulation equations with $N$ phases have $2N$ characteristics which may be of hyperbolic or elliptic type. In this paper a nonlinear theory is developed for coalescence, where two characteristics change from hyperbolic to elliptic via collision. Firstly, a linear theory develops the structure of colliding characteristics involving the topological sign of characteristics and multiple Jordan chains, and secondly a nonlinear modulation theory is developed for transitions. The nonlinear theory shows that coalescing characteristics morph the Whitham equations into an asymptotically valid geometric form of the two-way Boussinesq equation. That is, coalescing characteristics generate dispersion, nonlinearity and complex wave fields. For illustration, the theory is applied to coalescing characteristics associated with the modulation of two-phase travelling-wave solutions of coupled nonlinear Schrödinger equations, highlighting how collisions can be identified and the relevant dispersive dynamics constructed.