That depends on what link you look at.
http://www.flightglobal.com/Articles...or+cracks.html
I guess the Merlin could be used for short range but it is not ideal. It is big and has a fairly fierce downwash. These arguments against change were also used when the Sea King replaced the Wessex but there is a limit to what can be coped with. I also understand that it's design causes it to be little tricky in turbulent air which may cause difficulties in the mountains in 50kt+ winds. However I haven't flown it so don't know about this. I will get to see one tomorrow so will ask the pilot how it copes. With regard to the Mk's available, I don't know a lot about them but the RAF version does not have a radar so would be unsuitable.
Incidentally, I believe Westland may agree and understand they may offer a mixed fleet solution including Merlins and Agusta 139's (or similar).