Dear Ashutosh
Thank you for your reply.
The question of selecting HTML option did not arise because I couldn't install the hotfix in the first place.
I again requested the hotfix from MS, downloaded it and tried applying and it got installed without any issue. Mail Merge is now working. I did not have to use workaround.
I am now wondering why the hotfix did not get installed previously and now why it has got installed!
Nonetheless, the functionality is now working for me.
Thanks,
Pankaj