A Bismarck mutiny would create a Free German naval force

The surrender of Bismarck and Prinz Eugen would be a huge Allied propaganda victory and could create valuable Free German ships, but it would also provoke German reprisals and concentrated attacks.

Question

How would Britain react if mutinies aboard Bismarck and Prinz Eugen caused both ships to surrender?

Short answer

Britain would gain a major propaganda and naval asset, possibly a Free German force, while Germany would target the ships and punish the Kriegsmarine personnel associated with the revolt.

Notes

If both ships surrendered at the Denmark Strait, Britain would gain an immediate propaganda triumph and two strategically valuable hulls. Hitler would likely demand their destruction, making Scapa Flow and the ships themselves major air-attack targets and exposing Kriegsmarine personnel to purges. If the mutineers formed a Free German naval force, the ships could support operations such as Torch and the Normandy landings rather than becoming ordinary British prizes. Britain would still have to repair German mechanical and armament problems before using them effectively.