Germany launch Sealion, but knowning this is all or nothing, the British throw everything they have got at the invaders. A couple of German Divisions are rushed across and ínitially make good progress, but soon seabattles with a ferocity not seen yet in world history rage in the Channel. Historians afterwards estimate that forces equivalent to three Divisions were lost on vessels trying to cross the Channel.
Almost the entire KM surface fleet and a large part of the U-boats so far in service are lost too, but at a horrendous cost in the RN. The Home Fleet, which already had drawn in most of the RN forces from other stations, is practically anihilated with 2/3 of its ships sunk or beyond repair and the most of the rest needing long time in dock.
Especially the minefields and the connected U-boat ambushes took a hard toll on the RN, the worst blow being the brand new battleship King George V, which first was immobilised by a mine, and next took five torpedohits on backboard side from a U-boat - and sank (the U-boat didn't survive for many minutes, but that was a poor comfort). The biggest problem was destroyers however, they had achieved splendid results in the crossing zone, there wasn't a German invasion fleet any longer, but the RN only had a handful of operational destoyers in British waters by October 1940.
The couple of German Divisions that had reached the British shores, after some very hard battles finally were overwhelmed, and all over GB churchbells rang in joy as the Cabinet met in London. The PM started the meeting with great pathos when describing the heroic deeds performed in the last weeks, but soon went into gloomy moode when he concluded that the losses in especially the RN had been so big, that the British at the moment were incapable of defending the Empire A lot of new builds of course were on the way, but so were a great number of German U-boats and new powerful battleships. In the Med. the Italian navy already was superior in both numbers and quality, and if the Japanese decided to have a go in the Far East, nothing really would be available to stop them. Pres. Roosevelt had indicated support in case of Japanese aggression, but the PM doubted that USA would sacrifice blood for saving the Empire.
If staying in the war GB would be in serious risk of both being cut off from imports and loosing the Empire.
"As a consequence..." the PM ended his speech " ...I ask the cabinet for support in approaching Germany and Italy for a peace agreement.
Meanwhile in Berlin the Führer at a staff conference stated that the losses taken in the Channel and on the British Isles (5 Divisions and most of the KM surface fleet) were to be considered eggs in the grand omelet he was baking: "The role of the British people in world history is to maintain their Empire - they can not do that if staying at war with Germany. I expect them to approach me any time, asking for peace. I intend to grant them that on very favourable terms, as that will leave us with both someone to bully the savages and a free back for our primary mission - the extension of Lebensraum into the East! When that job is done, we can always evaluate how the British have performed their role, and do the necessary adjustments".
OK I know this need a certain combination of cynicality and realistic judgement by Hitler, and that especially the later is not that likely - but perhaps the clever German chemical industry has come up with a little pill...
Regards
Steffen Redbeard