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Probably just a water jacket cover gasket. Mercs dont have a head just take the cover off and get a new gasket clean all the surfaces good and use a light coat of aviation permatex on both sides of the gasket. Thats the brown stuff you brush on get the bolts good and snug and let it sit overnight then you should be set to go.
http://www.ebay.com/itm/Mercury-40-..._Accessories_Gear&hash=item4ac14ec70d&vxp=mtr
Depending on your HP and serial number it should look similar to this it`s just leaking out the water jacket cover around the spark plugs. Real common. Be real careful loosening the bolts heating it up around the bolts prior to loosening helps. The bolts tend to break real easy the older the motor. Take your time!