First, my disclaimer: I am not very accustomed to Wordmerge, and the knowledge I have of that solution comes from handling it sporadically in troubleshooting generic problems, so what I say may or may not be very accurate.
From my knowledge, Wordmerge can timeout if, for some reason, Word stops responding (e.g. if it causes a pop-up on the server) and the solution for it is typically to kill the Word process. When you start getting timeouts, do you see if the Word process remains open? If you kill it, does it continue to time out?