u can lose and when u come back there won't be ''Seph Guy''. Probably a bug, but at least u can now try solo the Genie guy
Well, if you save before the fight, you don't have to lose, he should be gone anyway.
Also, you can always reverse the time and fight without Sephiroth as well
Orrrrr....you can get so freaking strong that you don't need him at all. Point of taking him to that place is to destroy the door leading to the hideout. They regenerate in full after 15s so if you can't beat them down fast enough, you need to rely on pretty boy to do that for you...but if you can, there's no reason to talk to him in the first place