If I was in your position and facing the possibility of installing a new motor, I would take advantage of the situation and...
Having confirmed that the original motor wouldn't run reliably, if at all, I really would be inclined to seriously reconsider the option of a no-frills electric set-up.
Whilst I appreciate that replacing the engine may seem like the 'easier' option, especially if you're not too sure about electric set-ups (and you won't be the only one), it would be a more user-friendly option in the long run, and if the model is used infrequently.
Finally, I would clean-up and polish the original Merco, mount it on a stand or in a box frame, and find a space to put it on display.
Andy